October 31, 2012

Filing Boo-Boo Stories: "Have You Heard About the One..."

Good scary Halloween stuff, loosely based on the attention placed on the impact of Hurricane Sandy on EDGAR (see my blog about that from Monday). I have heard a few stories about errors in SEC filings recently such as these (please send your own stories - I will keep them confidential unless you tell me otherwise):

- The error in this exhibit to a SEC filing was likely caused by a disgruntled employee (or maybe someone at the financial printer was having fun) as the second resolution in this amendment to City National Bancshares' certificate of incorporation has swear language buried in the midst of it to the effect of: "you f__ing new when i asked you liartors..."

- Reminds me of a time around 20 years ago when someone I was working with did the same thing and filed an S-4 with the "Securitzed Exchange Ommission." Never occurred to anyone to read the very first line of a 200 page document.

- A fake Silicon Valley Form S-1 from a company called "Ponzify, Inc." with lots of comedy such as: "For instance, "Our company is built upon a viable revenue model" is a forward-looking statement."

And here is an excerpt from the fake Business Section: "Our primary measurement of revenue is a non-GAAP accounting principle known as Adjusted Consolidated Assumed Income (ACAI). ACAI is an ancient accounting remedy that can slow the aging process of most balance sheets and rejuvenate the face of any company, no matter what the medical community or the FTC might tell you."

- I scared myself when I plugged the "F" word into Edgar's search engine and got some hits. But that's because the prospectus for Audience Productions includes the screenplay for a movie entitled "Lydia Slotnick Unplugged." I'm not sure why the screenplay was filed but there you have it...

CII's Halloween Request to Top Bar Associations: No More "Zombie" Directors

Last week, CII issued this press release indicating that it wrote letters to the American Bar Association and the Delaware Bar Association urging them to revise their voting standard to a majority vote. In the letters, CII provided draft language and supporting commentary.

Recently, CII members approved revisions to their clawbacks policy and an anti-forced arbitration clause policy.

More on "The Mentor Blog"

We continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Earnings Call Disruptions: Why Don't They Happen More Often?
- NLRB's New Restrictions on Social Media Policies
- Food for Thought: The Audit Committee's Dilemma
- Sarbanes-Oxley and Audit Reform
- Insider Trading: Open Window Trading Periods Not Mandatory

- Broc Romanek

October 29, 2012

Anatomy of Another Groovy Proxy Statement: Microsoft

Recently, Microsoft filed its 2012 proxy statement. The upshot is that the company continues to evolve its approach, although most changes year-over-year are mostly cosmetic. But put 2011 and 2012 side-by-side and they look quite a bit different. Here are some of the changes:

1. Adopted the graphical look and feel of new corporate-wide branding guidelines (e.g., font, color, captioning). Moved to 2-column text for improved readability.
2. Continued to work on organization of content so that it flows more naturally and related parts are grouped together.
3. Highlighted on the cover that for the first time they are moving to proof of ownership for admission. They emphasize the point several other places.
4. Included an easy-to-understand table showing the vote needed for ballot items and effect of abstentions and uninstructed votes (pg. 3)
5. Described a political contributions disclosure policy (pg. 6)
6. Revised the graphical presentation of charts and graphs that they had used previously:
- Microsoft operating income vs. total direct compensation (pg. 25). The table illustrates that changes in total direct compensation for NEOs generally have tracked changes in our operating income over the last 5 years.
- Microsoft's position relative to peers on three measures -- revenue, market capitalization and headcount - (pg. 27). The chart represents the company's current position relative to combined peer companies on three dimensions, to demonstrate the complexity and scope of their responsibilities.
- Pay mix versus peers (pg. 28). The chart provides information about the company's fiscal year 2012 target pay mix for our NEOs (excluding Steve Ballmer) compared to the non-CEO NEOs of their Dow 30 and Technology peers companies.
- CEO pay comparison (pg. 29). The table illustrates Steve Ballmer's compensation opportunity for fiscal year 2012 compared to his peers.

The SEC's (& EDGAR's) Status During Hurricane Sandy

On days like this - where the SEC's HQ is closed but it's other office locations are open (at least those out of Sandy's path) - I wonder whether there should be someone responsible for managing the SEC's website and other communication functions outside of DC for these one-off situations. The SEC now has Hurricane Sandy info posted on its home page - and here is info for Edgar filers. Corp Fin is operating like during a snowstorm (see this blog) - which Dave has confirmed in response to a query in our "Q&A Forum" (#7393).

Alan Dye has addressed Section 16 filing deadlines in his Section16.net Blog today. In addition, some members report they have been able to file on Edgar so far today - but note this statement on the SEC's site:

During this weather emergency, we understand that filers may be unable to submit their filings. You should file when you are able. The Divisions will handle requests for filing date adjustments on a case by case basis.

As this article notes, it's the first time in 27 years that the NYSE has been closed due to weather!

- Broc Romanek

October 26, 2012

Court Finds PCAOB's Inspection Privilege Extends to Companies Too

Troutman Sanders' Brink Dickerson gives us this news: Recently, a court in the Western District of Missouri held that the PCAOB privilege applies - not only to material exchanged with the PCAOB and records of exchanges - but also to internal documents of the corporate client that reflect development of material and information for the PCAOB audit or investigation, because those materials were created because of the PCAOB action. The privilege may be asserted by the subject firm, as well as the PCAOB. This Bennett v. Sprint Nextel & KPMG decision is important because it is contrary to Silverman vs. Motorola, a 2010 Northern District of Illinois case that held that the privilege covered only documents and information prepared specifically for PCAOB.

Note that under §7215(b)(5)(B), without loss of the privilege, the material may be shared with other federal and state regulatory and enforcement entities.

Check out Francine McKenna's interesting piece in Forbes entitled "Is The SEC's Ponzi Crusade Enabling Companies To Cook The Books, Enron-Style?"

Federal Court Applies SOX/Dodd-Frank Whistleblower Protections to Non-Securities Law Circumstances

In his CompensationStandards.com blog, Mike Melbinger notes how a federal court recently allowed a whistleblower case under Sarbanes-Oxley and Dodd-Frank to proceed even though it related to an employee's complaints about a qualified pension plan - not a securities law area.

More on "The Mentor Blog"

We continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Even Domestic Bribery Falls within the SEC's Jurisdiction
- Delaware Allows $600 Million Caremark Claim To Proceed Against Allergan Directors
- Large Auditors Lobby Like Never Before
- Insider Trading: Three Thoughts about Rajat Gupta
- SEC Approves FINRA Rule Requiring Filing of Private Placements

- Broc Romanek

October 25, 2012

Our New "Shareholder Proposal Handbook": 206 Pages!

Spanking brand new. Posted in our "Shareholder Proposal" Practice Area, this comprehensive "Shareholder Proposal Handbook" provides a heap of practical guidance about Rule 14a-8. This one is a real gem - 206 pages of practical guidance. This is an update of a treatise that I co-authored with Beth Young and Bill Morley over a decade ago...

This Handbook doesn't cover Corp Fin's latest interpretative guidance (SLB #14G) - there are memos on that in our "Shareholder Proposal" Practice Area.

Where Should Lawsuits to Challenge a SEC Rulemaking Be Filed?

In the wake of the news of a lawsuit being filed against the SEC over its conflict minerals rulemaking in the US Court of Appeals for the DC Circuit, I received a few emails from members asking why this case wasn't filed in the lower court like the resource extraction lawsuit a few weeks earlier.

That's because the earlier resource extraction lawsuit also involved this emergency motion with the higher court to determine which court has jurisdiction. This emergency motion is slated to be determined on November 7th. This dual track approach over the resource extraction rules likely was taken due to the DC Circuit previously declining to exercise jurisdiction over a challenge to the CFTC's position limits rule a few months ago. Recall that the proxy access lawsuit was filed with the higher Court of Appeals...

In the conflict minerals case, an amended petition for review was filed on Tuesday to add the Business Roundtable as a petitioner.

Announcing the NASPP Career Center

If you are looking to fill a job opening or a stock plan professional seeking a new position, check out the new "NASPP Career Center." Any employer (NASPP member or not) can post an industry-related position - and active NASPP members can post a resume profile for visibility to employers looking to fill job openings; resumes are searchable by those with access to the Career Center.

- Broc Romanek

October 24, 2012

The Day the Earth Shook: Google's Premature Earnings Release

Who would have thunk that the process by which companies Edgarize and file their documents with the SEC would make headline news? But here's what the mass media ran on Friday:

- WSJ's 'Human Error' Rattles Markets With Early Release" featuring quotes from yours truly

- NY Times' "An SEC Filer's Nightmare: Making It Public Too Soon"

- Reuters' "Google results miss; shares dive after premature report"

- DealBook's "Google's Earnings Incident Shines Light on a Stealth Industry"

Some of these articles are better than others - and there were others written that were not worth linking to. Personally, I don't think bringing the process in-house will necessarily reduce the risk of human error. In that case, you are taking the process away from someone who files documents with the SEC all day long on a daily basis - and giving it to someone who might be doing it just a few times per quarter. That is safer? I think the upshot of this incident is that it's amazing this type of error doesn't happen more often. Note it happens several times per year, just never this highly publicized.

Financial printers haven't gotten this much press since the release of the "The Financial Printer Diaries" (a new installment coming soon).

Can a Financial Printer Be Liable for Filing Your Document Early?

One paragraph in this NY Times article states:

It is not clear how much liability R. R. Donnelley might bear for any losses Google incurred because of the early release of the report. Some have suggested that it will not be much because the earnings reported were accurate. But James Plumb, a longtime filing agent in Massachusetts, said he knew of at least one case in which an agent had to pay for its error, though it was two decades ago. "Could you get sued? Sure," he said. "The way I look at it, yes, if I make a mistake, I'm responsible."

My personal take is that your filing agent isn't liable if it accidentally jumps the gun and files your document before you wished. Particularly if the agent was smart enough to say so in it's contract when it was hired...

Transcript: "Evolution of M&A Executive Pay Arrangements"

We have posted the transcript for the recent DealLawyers.com webcast: "Evolution of M&A Executive Pay Arrangements."

- Broc Romanek

October 23, 2012

Industry Groups Sue to Kill Conflict Minerals Rules

Not surprising given the lawsuit filed by the Chamber of Commerce and others a few weeks ago against the SEC's resource extraction rules, a lawsuit was filed on Friday by the Chamber and the National Association of Manufacturers over the conflict minerals rules in the US Court of Appeals for the DC Circuit. As noted in this WSJ blog (and Bloomberg article), the petition for review is bare-boned and poses no arguments as its basis for challenge. We have posted the petition for review in our "Conflict Minerals" Practice Area.

In this Compliance Week blog, the next steps are listed as "the first batch of documents, including procedural motions, if any, and a "statement of issues to be raised" are due by Nov. 21, 2012. Dispositive Motions, if any, are to be filed by Dec. 6." Here is the court's Scheduling Order.

Is SEC Chair Schapiro a "Short-Timer"?

This Bloomberg article entitled "Schapiro's SEC Reign Nears End With Rescue Mission Unfinished" provides a critique of the Chair's tenure and notes that she is likely to depart after next month's election. In this Reuters article, the Chair denies she is planning to leave before her term ends in mid-2014.

More on our "Proxy Season Blog"

We continue to post new items regularly on our "Proxy Season Blog" for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Canadian Court Rules on Voting By Phone Case
- Open Investor Letter to ALEC and Heartland Member Companies
- Human Rights Activism: Big Win at a Mutual Fund
- Canada Considers Regulation of Proxy Advisors
- Recent Proxy Access Proposals by Chevedden and Steiner Survive SEC Challenge

- Broc Romanek

October 22, 2012

Beware! Fraudsters Looking to Rip Off Companies By Seeking "Annual Report" Fees

Brad Wood of Bass Berry gives us this news:

Please be aware that fraudulent solicitation letters are being sent to California businesses stating that such businesses are required to provide completed documentation - which looks very similar to state-required statements of information/annual reports - and submit an annual fee to a third party processor rather than directly to the Secretary of State office. I have not yet heard whether it has been happening in other states, but I wouldn't be surprised if that were the case.

Board Portal Limits

During last week's "Secrets of the Corporate Secretary Department" webcast, there was some interesting discussion regarding board portals - including their limits. In this podcast, Steve Shapiro of Pircher, Nichols & Meeks also describes the advantages - and limits - of board portals, including:

- What are the potential limitations of board portals that you see?
- Is there any way to compensate for those limitations?
- What advice would you offer for in-house governance professionals whose company has - or plans to use - a board portal?

Nasdaq Proposes Changes to Disclosure of Non-Compliance with Listing Standards

Recently, Nasdaq proposed to modify certain disclosure requirements surrounding a company's non-compliance with the listing rules. Here's a Blank Rome blog about its implications called "Has Your Company Received a Delisting Notice? Announce It Properly or Nasdaq May Announce It For You."

- Broc Romanek

October 19, 2012

Transcript Now Available: "Getting Beyond Denial: Conflict Mineral Rules More Important (and Apply Sooner) Than You Thought"

I have posted the transcript for the popular webcast on the SEC's conflict mineral rules. I believe Corp Fin continues to collect questions ahead of providing some interpretive guidance in this area. Here is a postscript note I added to the transcript about a common question on Form S-3 ineligibility:

Note that the question of whether a late Form SD will impact adversely a registrant's eligibility to file a new Form S-3 or update an effective Form S-3 for purposes of Section 10(a)(3) remains unresolved.

The Form S-3 eligibility requirements provide that a registrant must be both current and timely. Specifically, Form S-3 is available only to a registrant that (i) has filed all material required to be filed pursuant to Exchange Act Sections 13, 14 or 15(d) for a period of at least twelve calendar months immediately before the filing of the Form S-3; and (ii) timely filed all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the Form S-3. For purposes of Form S-3, the SEC staff historically has interpreted these "reports" and "materials" to include only Sections 13(a) and 15(d) reports and Sections 14(a) and 14(c) materials. See Securities Act Forms C&DI 115.04.

Because the new Form SD is prescribed by Exchange Act Sections 13(p) and 13(r) and the rules promulgated thereunder, it is arguable that a late Form SD should not impair Form S-3 eligibility (and, thus, also not make the registrant an "ineligible issuer" under Securities Act Rule 405 or cause the public information requirement under Securities Act Rule 144(c) not to be satisfied). The SEC Staff has been asked for its views on this question, but to date the Staff has not weighed in with definitive guidance. Hopefully this topic will be in addressed in any Staff guidance issued on the new Form SD filing rules.

Note this Cooley news brief about the pressure these rules are placing on smelters and refiners.

JOBS Act: FINRA Adopts Changes Research Analyst Rules

Last week, the SEC published a FINRA rulemaking that changes Rule 2711 and incorporates NYSE Rule 472 to conform to the JOBS Act so that EGCs can raise capital with reduced restrictions related to communication between EGCs and research analysts at investment banks and eliminate the research quiet period after an EGC's IPO or secondary offering.

As noted in this White & Case memo, the rule amendments are effective immediately with retroactive effect to April 5, 2012 (with an exception to retroactive implementation for the termination of the restriction on publishing research for 10 days after a secondary offering by an EGC and on publishing research during the 15 days following the termination of a lock-up agreement related to an EGC; this is not retroactive since it's not JOBS Act-related). We have posted memos in our "Analyst Research" Practice Area - and here is a MarketWatch article noting how these rules may bring back dot.com conflicts...

The PCAOB's Roundtable on Auditor Independence & Rotation

Yesterday, the PCAOB posted statements from the speakers ahead of its auditor independence and rotation roundtable that was held yesterday.

- Broc Romanek

October 18, 2012

Five More Compensation Committee Proposals from Exchanges

Rightfully so, all of the attention over the Rule 10C-1 rulemaking has been on the NYSE Euronext and Nasdaq National Market proposals. In all of the excitement, I forgot to note the five other proposals from these exchanges, several of which were released just last week (these are posted in CompensationStandards.com's "Compensation Committee" Practice Area):

- NYSE MKT Proposal

- NYSE Arca Proposal

- Nasdaq OMX BX Proposal

- CBOE Proposal

- BATS Exchange Proposal

SEC's Study: Ability of SEC to Enforce ' 34 Act Registration Thresholds

As required under Section 504 of the JOBS Act, the SEC has sent its Special Study to Congress on its ability to enforce Exchange Act Rule 12g5-1 and Subsection (b)(3). Check out Prof. Larry Hamermesh's reaction to the study, particularly to footnote 70.

Yesterday, the SEC posted the "Third Report on the Implementation of SEC Organizational Reform Recommendations." Learn more about the structure - and inner workings - of the SEC during our upcoming webcast: "How the SEC Really Works."

It's Done: 2013 Executive Compensation Disclosure Treatise

We just mailed the Lynn, Borges & Romanek's "2013 Executive Compensation Disclosure Treatise & Reporting Guide" to those that ordered a hard copy. The thing is huge at 1200-plus pages - on the verge on needing to be two volumes.

How to Order a Hard-Copy: Remember that a hard copy of the 2013 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately - however, CompensationStandards.com members can obtain a 40% discount by trying a no-risk trial now.

And note there an additional 40% off when you purchase this Treatise in combination with the just finished Romanek's "Proxy Season Disclosure Treatise & Reporting Guide."

- Broc Romanek

October 17, 2012

ISS Releases Draft 2013 Policy Updates

Yesterday, ISS posted its draft 2013 Policy Updates, with a comment deadline of Halloween. That's just two weeks - so no time to procrastinate. Mike Melbinger has posted a chart of the significant proposed changes in his blog. And Ning Chiu has summarized them in her blog - and here is a Gibson Dunn memo...

By the way, ISS now has FAQs about how its research department works...

Corp Fin Issues a New "Shareholder Proposals" Staff Legal Bulletin

As it often has in recent years about this time of the year, Corp Fin issued a Staff Legal Bulletin relating to shareholder proposals yesterday. Some new Rule 14a-8 guidance just before companies start preparing no-action requests.This year's installment - Staff Legal Bulletin No. 14G - covers these topics: ownership verification; informing proponents of failure to prove ownership and use of website references in proposals and supporting statements. Here are memos from Gibson Dunn and O'Melveny & Myers on the guidance.

Transcript: "M&A Deal Protections: The Latest Developments and Techniques"

We have posted the transcript from our recent DealLawyers.com webcast: "M&A Deal Protections: The Latest Developments and Techniques."

- Broc Romanek

October 16, 2012

Webcast: "Secrets of the Corporate Secretary Department"

Tune in tomorrow for the webcast - "Secrets of the Corporate Secretary Department" - to hear the current Chair of the Society of Corporate Secretaries - and three former Chairs - as they debunk myths on how to run the corporate secretary department as well as provide oodles of practice pointers. The panel includes Lydia Beebe of Chevron; Ken Wagner of Peabody Energy; Carol Ward of Mondelez International (formerly Kraft Foods); and Susan Wolf, formerly of Schering-Plough.

Among the topics of this program are:

- How to leverage outside resources & technology
- Best ways to feed and care for the board
- How to best manage a budget
- Ways to streamline the board materials process
- Ways to optimize director orientation & education
- How best to involve directors in shareholder engagement
- Being a governance subject matter expert and resource
- Logistics, contingency plans and last minute changes for board meetings

Nuggets in Responses to Corp Fin Comment Letters: Iran & Syria Travel Plans

Recently, Michelle Leder of footnoted.com (who recently bought back her site from Morningstar) tweeted about the interesting stats on travel to Iran and Syria booked via Expedia in this response to a Corp Fin comment letter. The comments came from Corp Fin's Office of Global Security Risk. You never know what you'll find in responses to comment letters...

Catch-Up Now: "Say-on-Pay Workshop Conference"

The video archive of last weeks' pair of Conferences - the "7th Annual Proxy Disclosure Conference" & "Say-on-Pay Workshop: 9th Annual Executive Compensation Conference" - are posted. Hopefully, you've talked to some of the many that attended this event and heard how much practical guidance was imparted (people come from all over the world; I sat at lunch one day with someone that came all the way from Israel). Our panels really delivered this year - and it's not too late to watch them as you can still register and watch the panels now or when you are gearing up to draft your proxy materials.

Our Week of Conferences: Sights

It was New Orleans, so there were numerous thrills outside the Conference, starting with a Sunday NFL night game next door in the beautifully lit Super Dome - those Saints fans sure know how to get dressed up. The next day, the city temporarily lost it's drinking water:

conf water.jpg

The Conference wouldn't feel right without the annual race of pigs from AON Hewitt/Radford (see this video from a few years back):

conf pigs.jpg

As a button maker myself, I was excited to see these magnets from Kenexa that had hilarious statements on them:

conf buttons.jpg

- Broc Romanek

October 15, 2012

Our New "D&O Questionnaire Handbook"

Spanking brand new. Posted in our "D&O Questionnaires" Practice Area, this comprehensive "D&O Questionnaire Handbook" provides a heap of practical guidance about how to navigate this tricky task. This one is a real gem - 76 pages of practical guidance...

I have started posting '13 proxy season checklists in our "Proxy Season" Practice Area.

CII's New Campaign Against Multi-Class Companies

In the wake of the Facebook debacle, the chorus to challenge multi-class voting structures - seen as a poor governance practice - continues as CII has announced a campaign to urge the NYSE and Nasdaq to make new companies that have two or more classes of common stock with unequal voting rights ineligible for listing. This press release contains links to the letters sent to the NYSE and Nasdaq by CII...

Webcast: "Evolution of M&A Executive Pay Arrangements"

Tune in tomorrow for the DealLawyers.com webcast - "Evolution of M&A Executive Pay Arrangements" - to hear Sullivan & Cromwell's Matt Friestedt, Wachtell Lipton's Jeremy Goldstein and Simpson Thacher's Andrea Wahlquist cover the latest in executive compensation arrangements in deals.

- Broc Romanek

October 12, 2012

Industry Groups Sue to Kill Dodd-Frank - Or At Least Redo Resource Extraction Rules

As I return from our week of executive pay conferences, Scott Kimpel of Hunton & Williams gives us this news:

A collection of industry groups has sued the SEC in federal district court to block implementation of the resource extraction disclosure rules promulgated in late August under Section 1504 of Dodd-Frank. The plaintiff trade groups raise a number of claims, including a faulty cost-benefit analysis and deficiencies under the Administrative Procedures Act, the Securities Exchange Act and the 1st Amendment. The act of filing suit does not immediately stay the rules. In recent challenges to SEC rules, the Commission has generally stayed the controversial rules on a voluntary basis after negotiation with plaintiffs' counsel. Should the Commission refuse to do so here, the plaintiffs could then petition the court for that relief.

The action concerning Section 1504 begs the question as to what may happen to its companion statute, Section 1502, concerning conflict minerals. The two rulemakings employed similar arguments concerning Congressional intent and the scope of Congress's mandate; a putative plaintiff may choose to raise some of the criticisms leveled in the 1504 complaint against the Section 1502 release as well. It remains to be seen if any groups will in fact come forward with a challenge.

To be clear, the apparent objective of this challenge is not necessarily to make the prospect of rulemaking go away forever. Unless the plaintiffs are successful in setting aside the entire statute as violative of the Constitution - or absent an amendment of Dodd-Frank - the Commission will have to go back to the drawing board if the rules are eventually struck down (which is far from certain) after all appeals are exhausted. This suit presents a different scenario than the SEC's rules on mutual fund governance, equity-indexed annuities and proxy access--each of which was struck down, but none of which was compelled by statute, which gave the Commission discretion not to re-propose.

Here is the complaint posted in our "Resource Extraction" Practice Area - and here's the Chamber's press release about the lawsuit...

Starting Monday: Draft Registration Statements Required to Be Submitted Using EDGAR

Yesterday, Corp Fin announced that draft registration statements are required to be filed via Edgar starting this Monday, October 15th. This applies to both emerging growth companies under the JOBS Act and foreign private issuers. Here are related blogs leading up to this development...

President's "Iran Sanctions" Executive Order Impact Foreign Subsidiaries and Require SEC Disclosure

On Tuesday, President Obama issued an Executive Order implementing certain sanctions set forth in the "Iran Threat Reduction and Syria Human Rights Act of 2012", which was signed into law in August. The Act expands the reach of the U.S. sanctions law against Iran by expanding the types of activities subject to sanctions and extending the prohibitions to foreign entities owned or controlled by U.S. persons. The Act also creates a new obligation for SEC reporting companies to disclose in their filings whether they or their affiliates knowingly engaged in Iran-related activities as noted in these memos posted in our "National Security" Practice Area.

- Broc Romanek

October 11, 2012

Study: CFOs Concede Earnings are 'Managed'

As noted in this article, this study made the rounds a few months back and caused a stir. Here is the abstract from the study:

We provide new insights into earnings quality from a survey of 169 CFOs of public companies and in-depth interviews of 12 CFOs and two standard setters. Our key findings include (i) high-quality earnings are sustainable and are backed by actual cash flows; they also reflect consistent reporting choices over time and avoid long-term estimates; (ii) about 50% of earnings quality is driven by innate factors; (iii) about 20% of firms manage earnings to misrepresent economic performance, and for such firms 10% of EPS is typically managed; (iv) CFOs believe that earnings manipulation is hard to unravel from the outside but suggest a number of red flags to identify managed earnings; and (v) CFOs disagree with the direction the FASB is headed on a number of issues including the sheer number of promulgated rules, the top-down approach to rule making, the curtailed reporting discretion, the de-emphasis of the matching principle, and the over-emphasis on fair value accounting.

Talk About Overboarded!?!

I don't know much about hedge funds and their boards, but this NY Times article was stunning as it revealed that quite a few directors serve on as many as 25 boards - and one dude sits on 262 hedge fund boards, per this chart.

Law Firms: Your Deal Data is Being Hacked!

This Bloomberg article entitled "China-Based Hackers Target Law Firms to Get Secret Deal Data" scared the daylights out of me. Check it out!

- Broc Romanek

October 10, 2012

Survey Results: Use of Proxy Solicitors

Much discussion here at our Conferences about the role of proxy solicitors during the say-on-pay process (here is the video archive from yesterday's "The Say-on-Pay Workshop: 9th Annual Executive Compensation Conference"). Here are survey results on the use of proxy solicitors:

1. Does your company use a proxy solicitor for the proxy season:
- Yes, every year - 64.9%
- Only in years of special need - 24.3%
- No, we don't use proxy solicitors - 10.8%

2. If a proxy advisor (ie. ISS/Glass Lewis) recommended a vote 'against' your company's say-on-pay proposal, your proxy solicitor's SOP projection (at record date vs. final voting results) was:
- Less than 3% (small margin between what estimated and what occurred) - 4.2%
- Within ± 3% - 5% - 16.7%
- Within ± 5% - 10% - 8.3%
- Within ± 10% - 15% - 12.5%
- More than 15% (large margin) - 0%
- Other/Don't know - 58.3%

3. If your proxy solicitor's say-on-pay projection substantially missed the mark during your latest proxy season, do you feel it was:
- Likely due to a good reason (eg. unforeseen circumstances) - 18.2%
- Not likely due to a good reason (ie. they just blew it) - 9.1%
- Don't know - 72.7%

Please take a moment to participate in this "Quick Survey on Conflict Minerals" and this "Quick Survey on Delegation of Authority."

Day Trading During Proxy Contests

In this DealLawyers.com podcast, Chuck Nathan of RLM Finsbury discusses an interesting - and potentially novel - situation in a proxy contest in which The Clinton Group (led by Greg Taxin, formerly a Glass Lewis founder) is seeking to remove 6 out of 7 directors through a written consent campaign and replace them with five new directors of Clinton's choosing. Clinton seems to be day trading Wet Seal stock, which may be the first instance in which an activist investor day traded the stock of a company during a proxy contest it was sponsoring.

An Update for Internal Audit Standards

Recently, the Institute of Internal Auditors (IIA) announced changes to the International Standards for the Professional Practice of Internal Auditing Standards effective January 1st. In total, 18 revisions were made.

- Broc Romanek

October 9, 2012

Today: "Say-on-Pay Workshop: 9th Annual Executive Compensation Conference"

Today is the "Say-on-Pay Workshop: 9th Annual Executive Compensation Conference"; yesterday was the "7th Annual Proxy Disclosure Conference" - and the video archive of that Conference is already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.

- How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (a prominent link called "Enter the Conference Here" on the home pages of those sites will take you directly to today's Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today's Conference Agenda; times are Central.

- How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online - and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic "prompts" all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few - but hours for each state vary; see the CLE list for each Conference in the FAQs.

M&A Lawyers and New Careers

In this DealLawyers.com podcast, Chuck Nathan of RLM Finsbury discusses his big life change, including:

- Why did you make the move?
- What will you be doing?
- How has the practice of law in M&A evolved over the years?

US Supreme Court to Decide Potential Landmark Case on Application of Statute of Limitations to SEC Civil Penalties

As noted in this Akin Gump alert, in Gabelli v. SEC, No. 11-1274, the U.S. Supreme Court has agreed to determine whether the "discovery rule," the concept that a statute of limitations is tolled until the underlying harm is discovered, applies to SEC enforcement actions seeking civil penalties.

- Broc Romanek

October 8, 2012

Today: "Tackling Your 2013 Compensation Disclosures: 7th Annual Proxy Disclosure Conference"

Today is the "Tackling Your 2013 Compensation Disclosures: 7th Annual Proxy Disclosure Conference"; tomorrow is the "Say-on-Pay Workshop: 9th Annual Executive Compensation Conference." Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.

- How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it's shown live). A prominent link called "Enter the Conference Here" on the home pages of those sites will take you directly to today's Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Adobe Flash Player).

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today's Conference Agenda; times are Central.

- How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online - and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic "prompts" all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few - but hours for each state vary; see the CLE list for each Conference in the FAQs.

ISS' 2013 Voting Policy Survey Results Now Available

Last week, ISS posted the results from its policy survey - 370 responses were received. Not surprising, executive compensation is the top area of focus across the globe. A summary of ISS's summary is in this Davis Polk blog...

Study: 20% of Companies Smooth Earnings

As noted in this WSJ article - which dissects this study - around 20% of CFOs interviewed believe that companies smooth earnings. Here is an excerpt from the piece:

Taken in isolation, this finding isn't that surprising. It is an open secret that companies play around with "cookie-jar" reserves, accruals, and other accounting instruments to flatter, or even depress, earnings.

The tricks are well-known: A difficult quarter can be made easier by releasing reserves set aside for a rainy day or recognizing revenues before sales are made, while a good quarter is often the time to hide a big "restructuring charge" that would otherwise stand out like a sore thumb.

What is more surprising though is CFOs' belief that these practices leave a significant mark on companies' reported profits and losses. When asked about the magnitude of the earnings misrepresentation, the study's respondents said it was around 10% of earnings per share.

Probably a good time for this series of "skepticism" webcasts hosted by a group of organizations that cater to CFOs...

- Broc Romanek

October 5, 2012

Dismissed: Three More Cases Related to Failed Say-on-Pay

Here is something I blogged yesterday in CompensationStandards.com's "The Advisors' Blog":

Mark Poerio of Paul Hastings reports: Last week, the application of Delaware law principles has led courts in Colorado (Janus Capital), North Carolina (Dex One), and California (Hewlett-Packard) to dismiss shareholder challenges based on alleged disconnects between pay and performance, failed say-on-pay votes, and alleged waste through payment of $53 million of severance. In each case, the underlying complaints failed to excuse a pre-suit demand because none of the allegations created a reasonable doubt that the questioned transaction was entitled to protection under the business judgment rule.

These lawsuits will be discussed next week during our Conferences - "7th Annual Proxy Disclosure Conference" & "Say-on-Pay Workshop: 9th Annual Executive Compensation Conference" - for which it's not too late to register. If you do intend to register in person in New Orleans, please bring a check as indicated in this note. You can still register online at any time if you intend to watch by video.

Corp Fin Updates Financial Reporting Manual (Again)

Yesterday, Corp Fin indicated that it has updated its Financial Reporting Manual for a JOBS Act note and clarification of guidance related to proxy statement requirements for the disposal of a business, auditor association with amounts from inception, the application of PCAOB auditor requirements in a reverse merger, reporting requirements in a reverse acquisition with a non-shell company, and other changes.

Can the SEC Eliminate the Prohibition on General Solicitation Retroactively?

Keith Bishop continues to blog provocatively - the latest being this gem about whether the SEC can give its upcoming rulemaking on general solicitation retroactive effect...

Meanwhile, state regulators are not too happy about the SEC's proposal, as noted in this article...

- Broc Romanek

October 4, 2012

Apple in the Crosshairs: Reg FD, Privacy, Etc.

Part of being the highest profile company in the land means that more attention is paid to what you do. From a compliance standpoint, Apple hasn't always embraced that attention. For example, the fact that their announcements might move markets (eg. Steve Jobs health) - or even perhaps what they say about their financial performance during product announcements - as illustrated by this recent blog by Gus Schmidt of Gunster entitled "Did Apple violate Regulation FD at its iPhone 5 release conference?".

In addition, as this blog notes, Apple recently received a shareholder proposal asking the company to publish a report explaining how its board is overseeing privacy and data security risks. Note that one thrust of this proposal is about personal information privacy. That can encompass issues such as what personal information is collected by apps, where it is stored, how it is used and shared, and how user consent is obtained.

The SEC's cybersecurity disclosure guidance from last year did not mention the word privacy, although federal and state privacy laws can be implicated in the context of a data breach involving personal information (what the SEC described as a cyber incident). In light of the recent legislative focus on privacy and data security topics, and increased media focus on Big Data and companies' privacy practices, the SEC might conclude that shareholder proposals related to information privacy risks or cyber security risks raise significant policy issues and therefore are not excludable under Rule 14a-8(i)(7) for the reasons discussed in Staff Legal Bulletin No. 14E. In the coming proxy season, more companies may see shareholder proposals focused on cyber security and privacy risks. So, now is a good time for their management and boards to focus on their risk management in those areas. Thanks to Jim Brashear of Zix Corp. for his insight!

Now Effective: Higher Filing Fees at the SEC

Don't forget that fees to register securities at the SEC went up effective October 1st. Here is my blog about the rate increase from last month...

I'm bummed the baseball team here - the Washington Nationals - let the Teddy mascot win the daily race against his fellow Presidential mascots during yesterday's game. Having him consistently lose was starting to become a national "thing" - and that's great branding. No more. But I have "Natitude" for the coming playoffs...

How to Transition Existing Draft Registration Statements to Edgar

Yesterday, Corp Fin posted this sample letter that it has sent to companies whose draft registration statements are under review so they can transition them to the new Edgar process - using Form DRS - explained in this blog.

- Broc Romanek

October 3, 2012

Clarification of the NYSE's Preferred Stock Voting Requirements

A member recently sent me the following: Recently, there has been a marked increase in the number of public offerings of preferred stocks and many of those securities are listed. We understand that NYSE Staff has applied a heightened level of scrutiny to the provisions of these preferred issuances, in particular those relating to voting rights of the preferred stockholders. Consequently, it seems timely to share some perspectives gleaned from recent transactions reviewed by the NYSE Staff.

It may be worth noting as an initial matter that the requirements discussed below are not applicable to trust preferred securities, which are not listed under the preferred stock listing requirements set forth in Section 703.05 of the Listed Company Manual. Trust preferred securities are listed under Section 703.19 ("Other Securities") and are analyzed by the Exchange as structured products rather than as preferred stocks.

The applicable rules are found in Section 313(C) of the Listed Company Manual. The provisions that have generated comments from the NYSE Staff typically relate to the voting rights of preferred stockholders when the issuer proposes to amend the terms of the preferred stock in a manner that would "materially affect" the rights of the holders of the preferred stock.

The threshold question is what constitutes an amendment that " materially affect[s]" the rights of the preferred stockholders? The NYSE Staff has made it clear that this voting requirement is triggered only in the event of a material adverse effect on the rights of the preferred stockholders and that, generally, these would be changes that relate to the economic rights pertaining to the preferred stock (such as its dividend rate, its liquidation preference, or the creation of a senior issue) or the voting rights of the preferred stock. However, this is not necessarily an exclusive list and you should consult with NYSE Staff if there is any question as to whether a proposed amendment requires a vote.

The area which has generated most confusion, and has led to the NYSE Staff requesting changes to transaction documents, relates to who gets to vote in the event of a material change. Section 313(C) provides as follows:

- Approval by the holders of at least two-thirds of the outstanding shares of a preferred stock should be required for adoption of any charter or by-law amendment that would materially affect existing terms of the preferred stock.

- If all series of a class of preferred stock are not equally affected by the proposed changes, there should be a two-thirds approval of the class and a two-thirds approval of the series that will have a diminished status.

The NYSE Staff has indicated that the above provisions should be understood as follows:

- For matters which affect multiple classes or series of preferred stock, the first bullet above requires that at a minimum the terms of the listed preferred must provide that the listed preferred has the right to vote along with all other outstanding classes or series of preferred stock (either listed or unlisted) that have voting rights and are similarly affected by the proposed action. The proposal must be approved by the votes of two-thirds of all such classes or series considered in the aggregate.

- The second bullet requires that the listed preferred must have the right to vote separately on any proposal which affects the listed preferred in some respect that is more negative than its effect on other classes or series, with a required vote for approval of two-thirds of the listed preferred. If the negative effect is on the listed preferred alone, then the holders of the listed preferred must have the right to vote as a separate class; if it affects multiple classes or series (either listed or unlisted) in the same way, then it is appropriate for all of the affected classes or series to vote together. While it is not explicitly stated in the rule text, the voting requirements of the first bullet can also always be met by providing for a separate vote of the listed preferred, as this is more protective of the holders than a vote in which they share the right to approve the proposal with other classes or series of preferred.

More Fallout in ISS-Proxy Solicitor Leak Case

Back in April, the New York Post revealed the persons involved in a scandal involving the leaking of confidential shareholder votes for money. Now, Reuters reports that ISS has received a Wells notice from the SEC related to a whistleblower complaint made against an employee. Here is MSCI's related Form 8-K.

Baldness Is Powerful: Yeah, Baby!

In honor of this WSJ article about how baldness can be an advantage in the business world, below is the second pic in my series of bald men in the corporate world (here is the first pic), featuring Pfizer's Bob Lamm and Alliance Advisor's Reid Pearson with me at the recent Southeastern Chapter meeting of the Society of Corporate Secretaries:

bald guys.jpg

- Broc Romanek

October 2, 2012

Course Materials Now Available: Over 40 Sets of Talking Points!

For the many of you that have registered for our Conferences coming up in less than one week, we have posted the Course Materials (attendees received a special ID/PW yesterday via email that will enable you to access them; but copies will be available in New Orleans). The Course Materials are better than ever before - with over 40 sets of talking points comprising 160 pages of practical guidance. We don't serve typical conference fare (ie. voluminous memos and rule releases); our conference materials consist of practical bullets and examples. Our expert speakers certainly have gone the extra mile this year!

For those seeking CLE credit, here's a list of states in which credit is available for watching the Conferences live in New Orleans and by video webcast. And for those attending by watching video online, you can test your access now.

Act Now: As happens so often, there is now a mad rush for folks to register for these Conferences that begin next Monday, October 8th. With an aggregate of over 50 panels (including the "20th Annual NASPP Conference"), if these Conferences don't help get you prepared for the upcoming proxy season, nothing will. You can either register for the three days of the "20th Annual NASPP Conference" (in New Orleans) - or the two days of the "7th Annual Proxy Disclosure Conference" & "Say-on-Pay Workshop: 9th Annual Executive Compensation Conference" (in New Orleans or by video webcast, or a combination of both). Register Now.

NYSE Amends Its Compensation Committee Proposal From Last Week

Here's news from Kyoko Takahashi Lin and Ning Chiu in this Davis Polk blog:

The NYSE has published an updated rule filing submitted to the SEC on the recent proposed listing standards related to compensation committees. The rule filing notes that "Amendment No. 1 corrects a single error in the rule text in Exhibit 5 as originally filed. The error was in Section 303A.00 under the heading 'Transition Periods for Compensation Committee Requirements.'"

To be clear, listed companies will have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014, to comply with the new director independence standards with respect to compensation committees. Other proposed changes, including those related to compensation committee advisers, will become operative on July 1, 2013.

Transcript: "Hot Topics for Smaller Company Legal Depts"

We have posted the transcript for our recent webcast: "Hot Topics for Smaller Company Legal Depts."

- Broc Romanek

October 1, 2012

JOBS Act: Corp Fin Posts 13 More FAQs

On Friday, Corp Fin posted 13 more FAQs related to the JOBS Act - Questions 42-54 - some of which relate to the confidential submission process that moves over to Edgar today, as I blogged about last week...

Recently, Glass Lewis ran this blog on "IPO Lockups Don't Live Up to Their Name."

Financial Institutions: Frequent Areas of Corp Fin Comments

If you work with financial institutions, you may want to check out this deck from some Corp Fin Staffers that highlight areas of comment.

Our October Eminders is Posted!

We have posted the October issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

- Broc Romanek